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Finding the beliefs that trap us

My recent Harvard Business School Working Knowledge column discussed how we’re trapped inside our beliefs. It even got mentioned on the Boston Globe BLOG. I say that “thinking outside the box” means thinking outside your beliefs.

But this is just darned hard to do! It’s not natural to sit around analyzing yourself to figure out what your beliefs are, so you can think outside them. And reading stuff written by people with vastly different beliefs isn’t likely to help you think outside your box unless you can suspend your beliefs pretty deeply. (I know, I was just reading a newspaper editorial, gritting my teeth the whole way through. “I can consider this with an open mind,” I futilely told myself.)

So instead of identifying beliefs by challenging them, let’s take another approach. Here are a bunch of beliefs I’ve encountered in clients and friends that hold people back from doing the things they most need to do. Notice that some of these beliefs are polar opposites. Indeed, the same belief can limit one person while freeing another. It depends on each person’s situation and their other beliefs as well.

Ponder this list. If any of them seem familiar, stop a moment and do a thought experiment. Ask yourself, “what would I be doing, who would I be, how would I act if I didn’t believe this?” Then imagine that different-You going through a typical day. The goal here isn’t to change your beliefs, just to step outside and test the waters.

Beliefs about yourself

  • I’m successful.
  • I’m a failure.
  • I deserve what I’m getting.
  • I don’t deserve what I’m getting.
  • I can do anything I put my mind to.
  • I don’t have the degrees/certifications/recognition to do it.

Beliefs about customers

  • Customers buy the lowest-priced product.
  • Customers buy the highest-quality product.
  • We must give all customers great service.
  • Our customers are [insert your demographic here]

Beliefs about competitors

  • We have no competitors.
  • We have lots of competitors.
  • Company X is our competitor. (Are Google and Microsoft competitors? Why? or Why not? Are they even in the same business?)
  • We are better than competitor X.
  • We are cheaper than competitor X.
  • Competitor X is a threat.
  • Competitor X is not a threat.

Beliefs about who we are and what we’re capable of doing.

  • We can accomplish goal G with resources R. (Often manifests after a layoff, as workforce is reduced but goals aren’t.)
  • We have the capability to do H.
  • We have the best programmers/manufacturers/documentors/operators/logistics in the world.

Beliefs about the future

I’ve chosen some of the hot topics that tend to be argued strongly from belief. Amusingly, most of the below beliefs have measurements and research available, but virtually none of us know about it (except as it is selectively cited by our favorite already-believes-with-us pundit):

  • We’ll have plenty of oil for the coming decades.
  • We’ll run out of oil in X years.
  • Economic health will lead to happier lives for us all.
  • Political party Z will win the next election.
  • We can pollute without having any really bad effects on the world.
  • If we spend more on schools, we’ll have better-educated kids.
  • Fixing education isn’t just a matter of money.

Beliefs about the world

  • Everything is politics. People are motivated by pure self-interest. I have to manipulate them to get what I want.
  • Everything is family. People are motivated by altruism. I can do good and appeal to their better nature to get what I want.
  • We have to see what the trends are, then act.
  • If we act first, we can shape the trends.
  • Life is a meritocracy. Rewards come to those who work hard.
  • Life is all about luck. Rewards have very little to do with working hard.
  • Taxes are bad. Period.
  • Taxes are the contribution we make to live in a country that provides common services.
  • Social problems should be solved by government.
  • Social problems should be solved by markets.

So why does it matter, anyway?

Your beliefs control what you do and don’t attempt in the world. If you believe you’re a bad negotiator, you’ll never put yourself in situations where you have to do difficult negotiations, so you’ll never go up the learning curve. It will become a self-fulfilling prophecy.

Your beliefs also determine the options you generate when you want to try something new. If you truly believe that Wal-mart is an invincible competitor, for example, you won’t even consider business options that would pit you head-to-head against Wal-mart.

And lastly, your beliefs determine what you pay attention to. They determine what you measure. If you believe customers are out to cheat you, you’ll invent things like software activation(1). If you believe customers are honest, you’ll likely create a tighter relationship with your customers because you’ll naturally engage in trust-building activities.

So now that you’ve tried on a few different beliefs. Here’s a final question to ponder: what could you measure or pay attention to that would let you know if the new belief you tried is better, worse, or as effective as your current belief?

Just a thought…

—–
(1) Software activation is a potential disaster for customers, but software companies don’t care.

Busy, but boy… word gets around

A friend just pointed me to this post on the Boston Globe where I’m being referenced. In this world of the Blogosphere, information moves fast! Shortly after posting my BLOG entry on oil and gas prices, I got a phone call from the PR agency for a major oil company asking about the entry. Cool stuff.

All that said, BLOGging takes time! And I’m already writing a column, recording podcasts, relaunching my web site, and, oh, yes, running a business. So my apologies. At least during client work and the like, BLOGging may not be as frequent as I’d like.

Next steps are to BLOG more and learn to start linking to other Blog posts I like. But meanwhile, I’m also going to be appearing on NBC Nightly News early next week, discussing overwhelm and coping with the information deluge.

So hang in there. I’ll find a way to write on a more regular basis.

What if politics were organized around process, not positions?

Ever notice how people don’t change their minds? Even when confronted with compelling evidence against their position, they cling to their position and emotionally shred the evidence rather than face the notion that their beliefs are wrong. As one high-ranking political player told me, “the world is too complicated to worry about whether policies produce the desired effects. Politics is simply about seeing your beliefs put into law. Period.”

I found this a very depressing position. And no matter what his beliefs, I don’t want this man making decisions that affect my life. Unfortunately, he’s in a position to make many, many such decisions.

I’m committed to a process of inquiry, discussion, and (unscripted!) debate about our goals and about which policies will actually reach our goals. So rather than “Liberal” or “conservative,” I call myself a Political Functionalist. You can read my draft Political Functionalism Manifesto here.

(Comments and flames appreciated, though only if they are in the spirit of inquiry and discussion.)

You want innovation? Think outside the box. The org chart box.

In my mastermind group, an HR consultant happily announced she just concluded a project standardizing job descriptions across a multi-thousand-person company. In that moment, she named herself my nemesis. For my job is helping people rise to their own strengths, and step outside the neat little boxes that give such comfort to the Standardizers of the World.

Everyone is forever asking how to motivate people. You can’t. All you can do is get out of their way. You want them to innovate? Break the mold and do something truly awesome? Standardized job descriptions aren’t the answer. Helping each person bring their unique strengths to bear is much more likely to produce great things. (Imagine if Patent Office clerk Albert Einstein had limited himself to his job description.)

The job market for CEOs and, indeed, executives places great stock in the notion that every Leader is a unique gem, whole clear sight and bold touch will transform an organization to greatness. We believe so deeply that we grant multi-million-dollar salaries in recognition of Executive Uniqueness.

Yet these very people diligently reduce everyone else to standardized job descriptions, salary bands, hours and schedules people work, and often even the clothes people wear. Then they complain that people show too little initiative, don’t think outside the [standardized] box they’ve so graciously been given, and won’t create a culture of innovation. No one seems to ponder that maybe we’re reaping exactly, precisely what we sow: the least common denominator. It’s easy to administer people if we treat them as interchangeable widgets, but then that’s all we get–the parts that are interchangeable.

It’s very easy to say that it makes things easier to manage to standardize job descriptions. And it does. It also sets up expectations, development plans, hiring processes, and a culture that values the standard, not the unique. In this age of “disruptive innovation” and “outsourcing” and yet the latest fad-of-the-month management concept, we’ve pretty much forgotten the basics.

Companies are built of people. No matter how many systems you put in place, it’s the people who endure and make those systems run smoothly. Most importantly, it’s the people who adapt those systems to changing circumstances. And when you treat people as interchangeable, standardized parts, you get people who like to have a known, predictable place in the world. It’s simple selection. People who are mavericks, who push the envelope, who are greatly creative likely won’t love working for a place where those qualities aren’t valued by the systems.

As the business world reaches an absurdly frantic pace, businesses–indeed, whole economies–claim they will thrive on innovation. But innovation comes from people who can move beyond the everyday assumptions into whole news realms. For example, people who step outside the notion that job descriptions must be standardized. You know “Gore Corporation,” the makers of Gore-Tex? They don’t have a hierarchy or job descriptions. Their facilities are self-organizing. They limit themselves to about 140 people (sociologists say that’s the largest group that can self-organize) and things run smoothly. They’ve realized that our notions of hierarchy and standardization aren’t natural laws, they’re just beliefs we’ve adopted and never questioned.

Look around you. Look at your leaders. Look at your peers. Look at your family, your children, and those around you. Where are they playing roles that don’t suit them? Where are they squashing their own strengths, or wasting endless energy trying to be something they aren’t? Is there any way you can help them? Find opportunities where their strengths can produce the most value. Give them chances to shine where they’re good. And where they’re not, rather than expecting excellence, rearrange things so they can refocus on the places they can real shine.

First, Break All the Rules by the Gallup organization studied millions to discover that success comes from a focus strengths, not weaknesses. Weaknesses are best handled with alliances and systems. You’ know a great idea person, who sucks at details? No sweat. Pair them with a details-oriented implementor and their team will be unbeatable. The energy that could move a weakness from “poor” to “average” can just as easily move a strength from “good” to “superb.”

Oh, and by the way, you’re a people too. Look in the mirror and do the same for yourself. Create a life and career where you can hone your strengths and let others do what you don’t do well. When you’ve organized your life around your excellence, not only do you get more done (the Holy Grail of the 21st century), but you’ll also become the Architecht of a fun, exciting, fulfilling life. And that’s a worthwhile job description.

Why gas prices are so high and oil companies enjoy record profits

On “The Daily Show” the other night, John Stewart hosted an oil industry expert talking a bit about current oil prices. She was a very happy woman, and her engaging, bubbly personality was just charming enough that she could repeatedly evade John’s questions without being too obvious. I thought I’d step in and answer her questions for her.

Why are gas prices so high?

John asked why gas is so expensive. She replied, “supply and demand. When demand goes up, prices go up.”

So far, so good. She’s quoting basic economics. John was ready for her: “Yes, but why do profits go up? If oil is more expensive, wouldn’t that offset the higher prices resulting in the same profits?”

Bubbly oil company rep: “Oh, but John, when demand goes up, prices go up.”

… and this exchange was repeated about four times.

Should gas prices go up while oil profits don’t?

At first glance, it seems like John’s logic is sound. Let’s say oil costs $1/gallon. Let’s assume it costs an oil company 50 cents to refine, transport, and sell the gasoline. They sell it at the pump for $2.00. Their profit:

Original
Revenue $2.00
Cost of oil ($1.00)
Cost of processing ($0.50)
Profit $0.50

If oil goes up 50 cents to $1.50/gallon, the oil companies should pass that cost through to the consumer, sell the gas at $2.50, producing:

Higher prices
Revenue $2.50
Cost of oil ($1.50)
Cost of processing ($0.50)
Profit $0.50

Same profit. So if they’re enjoying record profits, they must be price-gouging, right? Wrong.

 

The problem is Wall Street or, more accurately, how we all treat money.

Oil companies just don’t pass costs through to consumers. We as investors and Wall Street don’t look at the actual dollar amount of profits. We care about profit as a percentage of sales. We don’t say “My investments made $3,000 for me last year,” we say “My investments made an 8% return last year.” That’s the profit margin. Profit margin is a company’s bottom line profits divided by top-line sales.

Let’s look at the above scenarios again, but this time we’ll look at profit margin, not profit dollars:

Original
Revenue $2.00
Cost of oil ($1.00)
Cost of processing ($0.50)
Profit $0.50
Profit margin 25%
Higher prices
Revenue $2.50
Cost of oil ($1.50)
Cost of processing ($0.50)
Profit $0.50
Profit margin 20%

When oil prices go up, if oil companies simply passed through the cost without an additional markup, their profit margin would fall. In the world of investors who care about percentage profits, this is a strict No-No.

So when oil companies raise their prices to keep their profit margin constant, they have to raise their prices from $2.00/gallon to $2.67/gallon even though the oil price change was only 50 cents:

Higher prices
(constant profit margin)
Revenue $2.67
Cost of oil ($1.50)
Cost of processing ($0.50)
Profit $0.67
Profit margin 25%

Instead of gas going up 50 cents when oil prices go up 50 cents, keeping profit margin constant means gas prices will raise 67 cents when oil prices go up 50 cents. That extra 17 cents flows straight to the bottom line. In dollar terms, profits formerly at $.50 are now at $.67.

(So that is a 34% increase in the actual dollar amount of profits! Even though the profit margin (percentage) stayed the same, the media will likely be reporting it as “a 34% increase in profits.” And it’s quite a large increase for the company doing nothing but marking up their product using a standard business markup practices.)

Now we can ask whether oil companies are using the tight supply to mark up their oil even more. If so, that’s where the unethical behavior and price gouging is coming in. But sadly for the rest of us, unless we want to let oil companies report lower percentage profits without penalty, every increase in oil prices will be offset by a much greater increase at the pump.

By the way, oil CEOs shouldn’t be paid for huge profits from supply price increases. That just rewards them for tightening supply and not investing in new energy sources!

Now that you know the rational side of the argument, visit my rants blog to learn why we’re getting exactly, precisely what we have said we wanted for the last thirty years.

Kids on Planes, how nice. Please, leave them at home.

It was worse than a Stephen King Novel. Eight hours from Milan to Boston. A newborn in the seat to my right. His 2-year old sister two seats to the right. One in the seat in front of me. Two other children (same family, apparently) in the row behind. One more, two rows behind me. All age 3 or under.

For Goodness sake, if you’re gonig to have kids, don’t travel with them until they’re old enough to handle the experience. The kids are miserable. The little girl sat in her seat before takeoff crying sadly, “I’m scared. I’m scared.” My heart almost broke. Airplanes are also notorious breeding grounds for germs. People bring viruses and bacteria from the world over and happily share recycled air for half a day. Kids–already prone to sickness as they build their immune systems–are innocent victims of our cosmopolitan lifestyle.

Leave the kids home. It’s a mercy for the kids!

(Have I mentioned that it’s also a mercy for the rest of us? This morning, I loved kids. Now I’m rapidly becoming an advocate for population control. As much as I advocate community, I’m trying really, really hard not to point out how much nicer it is for the other passengers as well. Kids are cute, but, well, they yell. And cry. And poop. And vomit. And extrude. And spit. And lots of other things. And when they do it in an enclosed metal tube for eight hours, the charm wears off for those of us not genetically related to the adorable little people.)

Does hard work bring success?

A reader wrote:

So my parents and friends insist I work harder to be more successful. But I can’t concentrate for another hour. I just zone out. Do you have any advice?

Two things jump out at me: first, you may be letting others set your goals. You say your friends and family are telling you how to be successful. Whose definition of success are they using? If they’re talking about their definition of success, be thoughtful. Decide what success means for you, and pursue that in the way you find best. Often, what we want for a happy, fulfilling life is not what others want us to have. At some point, we need to shift from following their dreams to following our own (for many people, this shift takes decades if it ever happens at all).

Even if you agree on the definition of success, however, they may not know the best way for you to get there. Not everyone can simply push themselves harder. For many of us, overwork doesn’t work. The book “The Power of Full Engagement” presents research showing that people aren’t more productive simply by working harder. We need time to rest, recharge, and build our capacity. We work best by alternating hard work and recharge time. If you’re at your work limit, go rest. Then you’ll be able to work harder again later.

One last thing, however. If you can’t concentrate at all, you may have a short attention span or even attention deficit disorder. For short attention spans, I’ve heard that meditation and concentration exercises can help you develop the ability to focus for longer periods. When it comes to ADD, I’m not qualified to discuss it with any authority, but you can contact the Attention Deficit Disorder Association for more information.

Is our addiction to Ownership giving us less all around?

I’m sitting in my Milan hotel room, preparing to pack. I open the safe and take out my laptop, BlackBerry, and iPod. I retrieve my bill, check over the charges, making a note to tell them my morning’s breakfast didn’t appear on the bill. I gather up my wallet and prepare to leave.

Counting.

My world has limits. Limited time. Limited resources. And it’s amazing how much time and resources I waste counting and tracking to make sure all the accounts balance.

My entire morning was spent counting. My laptop is in a safe because someone might steal it. So we forge a safe from metal and energy, and I now use my life time and energy to remember the combination, open, close, pack, and unpack the safe. Every time I enter or leave the room. After all, my Blackberry, iPod, etc. were expensive! Must count and recount them. Otherwise, some evil person might make off with them. And then where would we be? My life might become meaningless.

And the bill! Goodness, now that I’ve been here four days, we use a Manager’s time, computer, printer, paper, toner, and a bellman’s time to deliver the piece of paper insuring we all know how much time I spent and everything is tracked to the last penny. What a grand use of our life, time, paper, and ink: counting things. At least it provides employment (and meaningful employment, at that. Counting things. Our most valuable activity.)

I’ve heard most of the expense of the phone systems isn’t in the physical infrastructure, but in the accounting and billing systems to track who called whom for how long. I can believe it.

We’re addicted to ownership, and to the counting and tracking we do to make sure all the right things are owned by the right people. Some degree of ownership may be hardwired, but that’s no excuse. We’re not hardwired to wear a suit and conform to our job description, yet billions of us do it flawlessly every day for 40+ years. We can overcome our hard-wiring. Instead, we’ve raised it to an artform. The flow of money–nothing more than counting–keeps Bill Gates worth as much as the bottom 175 million Americans, keeps billions in poverty, and distorts our very governance processes from creating nurturing communities. Instead, we nurture the sources of money.

I sometimes wonder how much infrastructure, time, lives, and effort we would save if we simply mellowed out and found a way to share as needed without this frantic need to own own own in unimaginable quantity. I suspect the “chaos” caused by relaxing our controls wouldn’t cost us humans a fraction of the resources currently sucked up by accounting firms, receipt printers and processors, billing systems, transaction processing, etc. What if all those resources that go into the relentless tracking were made available to feed, clothe, and help people be happy. It would certainly be billions (accounting firms alone make billions every year). Maybe it would be trillions. Perhaps enough to finance America’s looming Medicare crisis.

Counting. Things.

When my mother was dying, the day came to take her to hospice. She looked around her room. I asked what we should bring. She waved her hand dismissively and replied, “Stuff? These are only things. They don’t mean anything.” She took nothing. And she left this world with nothing except two children who loved her.

On the drive home after she was gone, I noticed her “Rodney Raindeer” beanie baby on the car dashboard. It’s the only thing of hers I kept. It was soft. It was loved, and she smiled when she saw it. At the end, that’s all that counted.

Wells Fargo: Do record profits herald disaster?

I just read an article in the May/June 2006 Harper’s, The New Road to Serfdom, an Illustrated Guide to the Coming Real Estate Collapse by Michael Hudson. In it, he steps through why the current real estate market has the potential to cause widespread economic ruin.

To summarize, banks are writing more and more mortgages on inflated house prices to people who don’t make enough to pay off the loans. People are paying interest-only loans or even partial-interest loans, so they are never building any equity. If prices level out or fall, those people are doomed. They can’t sell the house for enough to repay the loan. So they’re stuck. If interest rates go up, then they can’t make their monthly payments either, and their only recourse is bankruptcy. If this happens enough, the banks are screwed because they lose the money they loaned.

Then I read the story about Wells Fargo: First-quarter profit rose 9 percent, as growth in deposits and fewer loan losses offset weaker results from mortgage banking. It sounds great, since they just had a $2 billion quarter. But look closely!

Here are the facts:

  • They wrote 40% more mortgages than last year—about $31 billion increase.
  • New applications are holding steady.
  • “Nonperforming assets” (that means loans that aren’t being paid) rose 31% to $1.85 billion.
  • They also wrote off $433 of bad loans.
  • They set aside $433 million for bad loans—down 26% from last year.

Here are my inferences:

If they wrote 40% more dollars of mortgages, either their existing customers are taking out mortgages at 40% higher values, or they’re getting new customers. If they’re writing bigger loans, those loans likely on inflated home values. If prices fall, owners will be locked in at best, and go bankrupt at worst. If those are all new customers, it’s hard to imagine they’re all middle-class, creditworthy people who just now have decided to buy. I suspect they’re taking people on shakier and shakier terms (e.g. interest-only loans, less money down, etc.) Ultimately, that endangers them for reasons above.

Since pending applications are steady, it’s hard to imagine where further growth will come from except by more aggressive marketing to lower quality groups or by offering more aggressive/riskier terms (e.g. less down, etc.) to existing borrowers.

Yet they are doing this 40% run-up in writing mortages even as they experience a 31% increase in loans not being repaid. So that implies more and more loans in the future won’t be repaid.

So logic would suggest they hold back more and more money to cover the potential damages of future loan defaults. But they didn’t do that.

They wrote off $433 million of bad loans, and set their reserve to the same amount, probably setting the bad loan cushion on immediate writeoffs, not on projected loan defaults going forward.

So why would they do that? Well, my guess is that executive compensation is based on current profits, not future health of the company. And by lowering their reserve by 26%, they managed to push quarterly profits up over $2Bn for the first time, which sounds great in the press.

So here we have a bank making more loans, with a steadily increasing pool of bad loans, and shrinking reserves to cover the difference. And remember how leveraged banks are–a single $100,000 loan defaulted requires $2MM worth of new loans being successfully paid to recoup the lost money. If hundreds of millions default, it quickly becomes very hard for the bank to dig its way out of the hole.

But for now, things look great. Happy banking!

(Please note that I’m going solely off my understanding of the Harpers article and the Boston Globe article. If there’s something I don’t understand about this situation, please leave me a comment and I’m happy to publish corrections!)